9911796707
TMI Blog1980 (3) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-72 and 1972-73. The relevant valuation dates are March 31, 1971, and March 31, 1972, respectively. The assessee has kept his accounts on cash basis. In the wealth-tax returns filed by him for the assessment years 1971-72 and 1972-73, he estimated his collectible fees after deducting 25% out of the total bills outstanding as on March 31, 1971, and March 31, 1972, at Rs. 1,05,000 and Rs. 1,00,000, respectively. The assessee claimed before the WTO that these amounts were not includible in his net wealth. This claim was rejected by the WTO. Aggrieved by the orders of the WTO, the assessee preferred appeals to the AAC. Before the AAC, it was contended for the assessee that as the bills had not been accepted by his clients the amounts representing the bills due as on the valuation date should not be treated as assets. Alternatively, the assessee claimed that the liability in respect of income-tax payment on these bills should be deducted. The AAC, though he rejected the claim of the assessee that the value of the bills due as on the valuation date should not be treated as assets, accepted the alternative contention of the assessee to the effect that the income-tax payable on such amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utstanding bills as on the date of valuation was correct. He submitted that it is well settled that a debt due to an assessee as on the date of valuation constitutes his " assets " and it is also well settled that a debt is a sum of money, which is presently payable or will become payable in future by reason of a present obligation and, therefore, the amounts representing the bills amounted to a debt due to the assessee as on the valuation date and fell within the description of the word " assets " defined in s. 2(e) of the Act. In support of his contention, he relied on the decision of the Calcutta High Court in Dipti Kumar Basu v. CWT [1976] 105 ITR 450. Section 3 of the Act provides that for every assessment year commencing on and from the first day of April, 1957, wealth-tax is leviable on the net wealth of an individual or an undivided family or a company as on the valuation date. Section 4 provides as to what are the assets which should be considered as belonging to an individual as on the date of valuation. The word " asset " is defined in s. 2(e) of the Act. According to the said definition, the word " asset " used in the Act includes all property of every description, mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a trader there is an exception to that principle. I take for simplicity the trade of a grocer. He makes out his accounts on an 'earning basis.' He brings in the value of his stock-in-trade at the beginning and end of year : he brings in his purchases and sales; the debts owed by him and to him; and so arrives at his profit or loss. If such a trader appropriates to himself part of his stock-in-trade, such as tins of beans, and uses them for his own purposes, he must bring them into his accounts at their market value. A trader who supplies himself is accountable for the market value. That is established by Sharkey v. Wernher [1956] AC 58; [1956] 29 ITR 962 (HL)(E) itself. Now, suppose that such a trader does not supply himself with tins of beans, but gives them away to a friend or relative. Again he has to bring them in at their market value. That was established by Petrotim Securities Ltd. v. Ayres [1964] 1 WLR 190 (CA). Mr. Monroe, on behalf of the revenue, contends that that exception is not confined to traders. It extends, he says, to Professional men, such as authors, artists, barristers, and many others. These Professional men do not keep accounts on an 'earnings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading transaction accrues or arises, even though income is not realised, income embedded in the receipt is deemed to arise or accrue. Where the accounts are maintained on cash basis receipt of money or money's worth and not the accrual of the right to receive is the determining factor." The aforesaid views hold good for the purpose of computation of income of the assessee and, therefore, it cannot be said that the outstanding bills constituted the income of the assessee during the relevant year. Further, the I.T. Act, 1961, also contains s. 145 which is similar to s. 13 of the 1922 Act. In view of s. 145 of the 1961 Act also, the amount representing the unpaid bills due to the assessee, who is maintaining his accounts on cash basis do not constitute his income received for the relevant assessment year. Only the income received by the assessee on or before the valuation date and retained by him as on the valuation date constitutes his wealth. In a case of this type, the cause for the wealth is the income or in other words the effect of the receipt of income is the wealth. Therefore, it would be anomalous to say that the wealth which would be the effect of the receipt of income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no reason for disregarding the cash system of accounting employed by the assessee according to which the amounts not received could not be treated as the income of the assessee. In the case of CWT v. Aluminium Corporation of India Ltd. [1972] 85 ITR 167, the Supreme Court held that unless an assessee satisfied the WTO that the valuation shown in the balance-sheet is not correct, the WTO would be entitled to proceed on the basis of the value shown in the balance-sheet for computing the value of assets of such assessees for purposes of levying tax under the Act in view of s. 7(2) of the Act. The relevant portion reads (p. 172) : " Wealth-tax is levied on the value of the assets of the assessee on the valuation date. Section 7(2) of the Wealth-tax Act merely requires the Wealth-tax Officer to have regard to the balance-sheet. It is open to the assessee to satisfy the authorities under the Wealth-tax Act that the valuation shown in the balance-sheet is not correct. But in the absence of such a proof, the Wealth-tax Officer will be justified in proceeding on the basis that the value shown in the balance-sheet is correct because no one can know the value of the assets of a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issa High Court which was based on the reasoning of the decision of the Supreme Court in the case of Raja Mohan Raja Bahadur [1967] 66 ITR 378 (SC). Further, we do not agree with the view taken by the Calcutta High Court that the system of accounting adopted by an assessee is of no consequence under the W.T. Act as such a view would be contrary to the express provision contained in s. 7(2) of the Act and this aspect is overlooked as is clear from the following portion of the judgment (p. 463) : " The tax officer is expressly authorised to make adjustments in the balance-sheet under section 7(2)(a) of the Act 'if the circumstances of the case may require' him to do so. The fact that a book debt is not entered in the books is itself a circumstance which justifies its inclusion in the balance-sheet under this section for the purpose of making the adjustment. In our opinion, by making such adjustment in the balance-sheet, the tax officer does not convert the cash system of book-keeping into mercantile system of booking-keeping for the purpose of the Wealth-tax Act. " Further, we do not agree with the view that even when an assessee has maintained his accounts on cash basis regula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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